The Obama administration’s decision to cover an unlimited amount of losses at the mortgage-finance giants Fannie Mae and Freddie Mac over the next three years stirred controversy over the holiday.
The Treasury announced Thursday it was removing the caps that limited the amount of available capital to the companies to $200 billion each.
Unlimited access to bailout funds through 2012 was “necessary for preserving the continued strength and stability of the mortgage market,” the Treasury said. Fannie and Freddie purchase or guarantee most U.S. home mortgages and have run up huge losses stemming from the worst wave of defaults since the 1930s.
“The timing of this executive order giving Fannie and Freddie a blank check is no coincidence,” said Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee. He said the Christmas Eve announcement was designed “to prevent the general public from taking note.”
Treasury officials couldn’t be reached for comment Friday.
So far, Treasury has provided $60 billion of capital to Fannie and $51 billion to Freddie. Mahesh Swaminathan, a senior mortgage analyst at Credit Suisse in New York, said he didn’t believe Fannie and Freddie would need more than $200 billion apiece from the Treasury. But he and other analysts have said the market would find a larger commitment from the Treasury reassuring.
What’s your take? Are we looking at another two years of 30-year fixed mortgages under 5%?
Rodil San Mateo says:
This keeps Fannie and Freddie alive for a few more years, but keeping 30-year fixed rate mortgage rates below 6% (much less 5%) is up to the Federal Reserve. If the Fed’s program to buy $1.25 trillion of mortgage-backed securities ends as scheduled in March 2010, then rates are going up barring some economic catastrophe (12%+ unemployment rate? 2009 4th quarter GDP growth going negative?) Bernanke has slowed down and extended this program once already, so he’s risking his inflation-fighting credibility if he does so again.
I expect to see the Fed making more public statements that this punch bowl is leaving the party. So anyone who wants to take advantage of the lowest mortgage rates since the 1950s probably has until spring, maybe, to do so.
December 26, 2009 — 1:50 pm
matt mathews says:
Personally, I don’t think this move has anything to do with mortgage rates. I think it has more to do with building confidence within the secondary market so the Feds can dump off a few trillion$$ worth of mortgages into the private sector. Right now the Treasury(Our money) is buying close to 90% of all those new Fannie and Freddie sub prime tax credit loans.
December 26, 2009 — 3:30 pm
Ashlee says:
I have a feeling that the interest rates are going to increase gradually over the next year.
December 26, 2009 — 8:28 pm
James Boyer says:
I don’t know how to get into the technical explanations of this, but it is my belief that the government needs to and likely will do what ever they can to keep interest rates down until the residential as well as commercial real estate markets as well as the economy are in full recovery and jobs are being created for at least a few quarters.
December 27, 2009 — 8:43 am
Thomas Johnson says:
Jesse at the Crossroads puts it a $400 billion.
http://jessescrossroadscafe.blogspot.com/2009/12/monetization-treasury-adds-400-billion.html
December 27, 2009 — 9:29 am
Don Sharp says:
What would the world be like without a secondary market for residential loans; chaos?
December 28, 2009 — 12:48 pm
Aaron Catt says:
Just another attempt by our illustrious leaders to try and prop up the economy with digital dollars.
I’d say that the next housing crash, rather the deepening of the already infected wound, would be to allow borrowers to get into homes for 3.5% down in markets that are declining at 20%.
Here’s a recent quote from one of my favorite authors-
” 2009 was the Year of the Zombie. The system for capital formation and allocation basically died but there was no funeral. A great national voodoo spell has kept the banks and related entities like Fannie Mae and the dead insurance giant AIG lurching around the graveyard with arms outstretched and yellowed eyes bugged out, howling for fresh infusions of blood… er, bailout cash, which is delivered in truckloads by the Federal Reserve, which is itself a zombie in the sense that it is probably insolvent. The government and the banks (including the Fed) have been playing very complicated games with each other, and the public, trying to pretend that they can all still function, shifting and shuffling losses, cooking their books, hiding losses, and doing everything possible to detach the relation of “money” to the reality of productive activity.” James Kunstler
December 28, 2009 — 4:09 pm
Tony Hunthausen says:
It is clear that the current adminstraton is supporting interest rate and money supply policies that they believe will be friendly to stabalization and recovery in the housing market. This means keeping interest rates as low as possible. Unfortunately the low interest rates, coupled with significantly lower home prices, the 3.5% FHA easy money loans, and the increasing national debt with weakening dollar, may all combine to create not long term recovery, but another bubble ready to burst.
December 28, 2009 — 5:07 pm